The concept of health literacy has been widened to include higher order aspects such as patient decision-making skills while its measurement continued to rely narrowly on reading and numeracy skills, known as functional health literacy. We developed a Judgment Skills measure, designed to assess patients' ability to make appropriate decisions with regard to their condition. The measure offers scenarios with answer options ranked for biomedical adequacy. This study aims to examine the psychometric properties and the functional validity of the Judgment Skills measure. A self-administered survey among 87 primary insomnia patients in the Italian-speaking part of Switzerland was conducted. The extensive path model included variables such as functional health literacy, coping with the medical condition, experience of the scenario, sleep quality, duration suffering, education, and age. Correlation analyses were conducted to link the variables. The Judgment Skills measure showed the expected significant correlations. In general, higher Judgment Skills were related to coping strategies leading to better health outcomes. Functional health literacy correlated highly with education, while Judgment Skills did not, which confirmed the conceptual difference of these skills. The findings propose a model for conducting research that does embrace the broader conceptualization of health literacy.